FINC 341- FINAL EXAM THEORY QUESTIONS WITH DETAILED
VERIFIED ANSWERS / EXAM QUESTIONS WILL COME FROM HERE
(100% CORRECT ANSWERS/ A+ GRADED
A benefit of focusing on ROE is that it ensures that all profitable projects will be
accepted so that the average ROE of the firm will be boosted. - ANSWER-False
Since ROE is an important measure of performance, financial managers should try
to maximize the company's ROE. - ANSWER-False, maximizing ROE means
maximizing debt financing, and this is not good
EVA is different from Net Income because EVA reflects the cost of equity as well
as the cost of debt - ANSWER-True
When two mutually exclusive projects are being considered, the one with the
higher ROE should be chosen, regardless of project size. - ANSWER-False,
project size matters
A firm's EPS is highly correlated with its stock price. - ANSWER-False
While the NASDAQ trades more dollar volume than the NYSE, the NYSE has a
higher share volume traded than the NASDAQ - ANSWER-False
In 1792, 68 brokers created the New York Stock & Exchange Board under the
Buttonwood Agreement. - ANSWER-False, # brokers
In a dutch auction, stocks are sold at the highest bid price that would sell all of the
shares in the offering. - ANSWER-True
1
, When a company puts out a bond issue and then two years later puts out another
bind issue, the second bond is being sold on the secondary market. - ANSWER-
False, the first bond is being sold on the secondary market.
A dealer's profit is the bid-ask spread, and this spread generally becomes larger
when the stock is traded more often. - ANSWER-False, ?
When interest rates are low, an investor should consider buying bonds and then
selling them once interest rates go back up nil they want to make capital gains on
bonds. - ANSWER-False, buy when high, sell when low.
As U.S. rates go up, the dollar should strengthen and help U.S. companies that
import goods - ANSWER-True
The repeal of the Glass Steagall Act of 1933 under President Clinton's
administration has been partially blamed for the 2008-09 crisis. - ANSWER-True
Upper corporate managers are highly motivated to give their stockholders an
appropriate return on the stock because if the stockholders start selling the stock,
the company's stock price will decrease and the company can become a takeover
target. - ANSWER-True
Stock prices have increased significantly since President Trump was elected due to
expectations that the US economy will gain strength in the future from lower
corporate tax rates, repatriation of corporate cash from abroad, and some
deregulation of business. - ANSWER-True
The spread between yield curves of corporate bonds and Treasury bonds is larger
the longer the maturity because the corporate bonds are considered riskier if they
2
VERIFIED ANSWERS / EXAM QUESTIONS WILL COME FROM HERE
(100% CORRECT ANSWERS/ A+ GRADED
A benefit of focusing on ROE is that it ensures that all profitable projects will be
accepted so that the average ROE of the firm will be boosted. - ANSWER-False
Since ROE is an important measure of performance, financial managers should try
to maximize the company's ROE. - ANSWER-False, maximizing ROE means
maximizing debt financing, and this is not good
EVA is different from Net Income because EVA reflects the cost of equity as well
as the cost of debt - ANSWER-True
When two mutually exclusive projects are being considered, the one with the
higher ROE should be chosen, regardless of project size. - ANSWER-False,
project size matters
A firm's EPS is highly correlated with its stock price. - ANSWER-False
While the NASDAQ trades more dollar volume than the NYSE, the NYSE has a
higher share volume traded than the NASDAQ - ANSWER-False
In 1792, 68 brokers created the New York Stock & Exchange Board under the
Buttonwood Agreement. - ANSWER-False, # brokers
In a dutch auction, stocks are sold at the highest bid price that would sell all of the
shares in the offering. - ANSWER-True
1
, When a company puts out a bond issue and then two years later puts out another
bind issue, the second bond is being sold on the secondary market. - ANSWER-
False, the first bond is being sold on the secondary market.
A dealer's profit is the bid-ask spread, and this spread generally becomes larger
when the stock is traded more often. - ANSWER-False, ?
When interest rates are low, an investor should consider buying bonds and then
selling them once interest rates go back up nil they want to make capital gains on
bonds. - ANSWER-False, buy when high, sell when low.
As U.S. rates go up, the dollar should strengthen and help U.S. companies that
import goods - ANSWER-True
The repeal of the Glass Steagall Act of 1933 under President Clinton's
administration has been partially blamed for the 2008-09 crisis. - ANSWER-True
Upper corporate managers are highly motivated to give their stockholders an
appropriate return on the stock because if the stockholders start selling the stock,
the company's stock price will decrease and the company can become a takeover
target. - ANSWER-True
Stock prices have increased significantly since President Trump was elected due to
expectations that the US economy will gain strength in the future from lower
corporate tax rates, repatriation of corporate cash from abroad, and some
deregulation of business. - ANSWER-True
The spread between yield curves of corporate bonds and Treasury bonds is larger
the longer the maturity because the corporate bonds are considered riskier if they
2
